November 12, 2013

Wandering in Deep Value Land

As many of you know Benjamin Graham had a famous style of investing that sought to purchase deep value stocks selling for large discounts to their net current asset value. It's also called the cigar butt approach. You find these cigar butts laying around and sometimes they are good for one last puff. There are different kinds of deep asset value stocks. There are the cheap for a good reason and then there are the cheap with good potential. The deep value companies in industries that typically turn into deep value traps are biotech and semi-conductors. So many of these have traded for huge discounts to net current assets and even had some profitability but the stocks never come around.
Some of the best net current asset stocks I've seen tend to be in businesses with simply better business fundamentals. A lot of these will even have a "brand moat" they can in-circle around their little castles while working to bring the company back from the gutter. An example of one of these former net current asset stocks that turned around was sports retailer Finish Line years back.
The first stock I am going to look at today is SkyPeople Fruit Juice (SPU). It is in China so I proceed with caution. SPU trades on the Nasdaq and has a market cap of $51 million. It is in net current asset deep value territory because the company has $66 million in net current asset value. I simply took the $200 million in current assets and subtracted the 36 million in total liabilities. So, we are at a discount to NCAV. I bring this one up because cash has been extremely stable.
The next one is Books a Million (BAMM). BAMM has a market cap of $36 million and net current asset value of $21 million. We are not in NCAV land yet but this is something to watch. The stock currently trades at $2.46 per share and NCAV is $1.4 a share. Net tangible asset value is $6.50 a share.
Disclosure: no position in SkyPeople Fruit Juice SPU or Books a Million BAMM at time of writing.